BlackBerry Comeback Far From Certain

BlackBerry is finally ready to resume growth, says CEO Chen -- but first the company must overcome its crumbling device business.

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In a memo sent to employees, BlackBerry CEO John Chen said that, after three years of layoffs and restructuring, the company is finally poised for growth and plans to add jobs in the coming months.

"Barring any unexpected downturns in the market, we will be adding headcount in certain areas such as product development, sales and customer service, beginning in modest numbers," he wrote in the memo, whose contents were first reported by Reuters and subsequently confirmed by BlackBerry.

Chen offered few specifics about his turnaround strategy, though he cautioned that the company has little margin for error. Still saddled with a device business that literally can't get much worse, the CEO, who took over this year, hasn't convinced all skeptics.

Gartner analyst Ken Dulaney told us that it's too early to tell if Chen, who has rehabilitated failing companies in the past, can resuscitate BlackBerry. "I don't believe a lot of these pieces can survive when they're part of a hardware company." For smartphones, customers want to go somewhere else -- generally to Apple or, in markets with fewer subsidies, Samsung.

Chen's efforts so far have included selling assets and real estate and doubling down on the company's software and services. In June, for example, he talked up the BlackBerry Enterprise Server while tactfully dismissing Android's attempts at enterprise-grade security.

He's also focused on his company's security-centric customers, such as government agencies. However, reports indicate that this effort hasn't necessarily paid off. Likewise, Dulaney said, many of these customers have moved on.

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Having announced multiple rounds of layoffs involving thousands of workers each, the company appeared all but dead late last year when it posted a massive $4.4 billion quarterly loss. By last June, however, the company had slowed the bleeding. Its most recent quarterly earnings report was actually somewhat positive.

Revenue, which had been dropping like a stone, was almost flat, and unadjusted losses, still significant at $60 million, were smaller than analysts expected. The company reported that software and services accounted for more than three-fifths of its revenue, but that doesn't mean that Chen's strategy has translated into new business. Much of the business came from old, dwindling revenue streams.

Despite some positive signs, the company's device business has hit rock bottom. BlackBerry attempted a smartphone comeback last year with its BlackBerry 10, but according to the research firm IDC, the company's phones accounted for only 0.5% of shipments in the first quarter of this year. That was down from an already pitiful 2.9% at the same point in 2013 -- and way down from 13.6% in 2011.

To put that into perspective, in the first quarter of 2014, for every smartphone BlackBerry shipped, Windows Phone OEMs -- which haven't exactly set the world on fire themselves -- shipped more than five. Apple shipped more than 30 iPhones for every BlackBerry, and Android device makers shipped a mind-boggling 160 smartphones.

Meanwhile, data from Forrester Research indicates that, even among its so-called core enterprise users, BlackBerry maintains only vestiges of its past dominance. In a survey of almost 5,000 workers conducted late last year, Forrester found only 12% used a BlackBerry, compared to 44% who used an Android handset and 33% who used an iPhone.

If BlackBerry fails, Dulaney said, Chen shouldn't shoulder the blame. Dulaney called Chen a smart, financially minded executive who's "doing what he needs to do to cut costs." Still, Chen might have been brought in too late to salvage the company, at least in its current form.

"I can't see this company going ahead unless it's broken up," Dulaney said. BlackBerry Messenger is a valuable asset with a large user base that could attract outside funding if it stood alone. "But under a hardware company, it's not going to get the funding it would it were on the outside."

Michael Endler joined InformationWeek as an associate editor in 2012. He previously worked in talent representation in the entertainment industry, as a freelance copywriter and photojournalist, and as a teacher. Michael earned a BA in English from Stanford University in 2005 ... View Full Bio

@Grim Here is a reason. I'm unlucky enough I have to manage the cell service/devices in my biz unit in my spare time from my real job as developer/ERP support. We have about 35 phones here. There was a time, before Apple and Android, all we used were Blackberrys. We ran free version of BB Enterprise Server to send email for our Lotus Notes system. I personally had that first touch screen phone they had, forgot now what they even called it. It was flaky as heck. I got one for our top sales guy, he gave it back within a week and got one of the Android's on market.

One by one, every user wanted off that phone when time came they could change. Seeing as how AT&T data plan was $40 for BB use (you had to have Enterprise plan to work with email) and data plan was $26 for Android/iPhone (you can use personal plan with pushmail service for those), I encouraged the defection. Besides the data plan cost, Corp consolidate BB Enterprise Server at our hub, which put us on the paid version of that. That added an $80 license every year for every BB phone.

We now use Notes Traveler for pushmail. I know it supports iPhone, Android and Windows phones. BB, I have no idea because NO ONE has ever asked me about getting a BB phone again.

You and others keep listing all these tech reasons BB will come back in vogue. You really think my biz users give a damn about any of that and will come back? Unless those phones can teleport you from one place to another, no one is leaving the Win/Android/iPhone to go back.

You keep mentioning security. OK, maybe the CIA will require it's agents to carry BB for this reason. Does my Mom need this extra security? You are making same argument that Mac/Linux users like to throw at MS: No one is infecting our stuff with malware! Well, actually get a market share and then see what happens with that.

@Brad Understood. But becoming a troll seems to be the last gasp of a dying tech company. If BB succeeds, no danger of that happening. But if not, and they have everything stacked against them, the last act is either be a troll or sell the patents to a troll. Best case is selling to another big tech company (Google, MS, Oracle, Apple, etc) who puts the screws to everyone else trying to innovate and hits those patents. And in the end, the products we buy cost more than they needed to.

The Sybase and Blackberry stories have a lot of similarities. Both companies had a very secure position with a large base of customers invested in their technology. Both companies made bad technical and business decisions that caused them to rapidly fall behind the competition. Both of them were in freefall. Chen resuscitated Sybase not by restoring it to exactly the position it had (that ship had sailed already) but by finding strengths that could be leveraged in new ways. He then turned in several years of profitable quarters and eventually brokered a sale of the company at many times the value it had reached when it was in freefall. Blackberry is unlikely to have the position it once had in the handset market, but it also has technology beyond the handset that is widely used and potentially profitable on its own. Don't look for Chen to go down in flames trying to fight Apple or Samsung - he will choose the markets, the niches and the strategies that allow the company to build on its existing technical advantages, making it incrementally more profitable and looking for partnerships, acquisitions, marketing opportunities and possibly merger options that play to core strengths. Those who question whether the turnaround will be successful are thinking of "turnaround" in terms of "recovering past glory" or something like that. But that is not necessary in order for the company to remain relevant and financially stable. If Chen can succeed in efforts like leveraging QNX technology for the M2M market the company will not only stay relevant but possibly grow in previously unanticipated ways. To put it in a nutshell, Chen's approach is conservative but creative. That is why people have so much confidence in him.

You and other negative people are so confident BlackBerry are going to fail, what are your reasons? All the old negative news and all the not so true articles from places like BGR, you seem to think apple/android are the way? How can they be with NO security measures in place? Malware in 1 in 3 android apps, apple hacked / hijacked how many times this year?

why do you all have a downer on the company that beats all the others hands down? What security do the others have? All you saying BlackBerry handsets are old.. blah blah blah... have you used a Z30? No.

BlackBerry comeback is happening, apple demise is happening, android/google is so full of holes and malware it's going to kill itself.

No one trusts android or apple, proof of that is happening daily, even on BES10 companies and security services, governments etc are going BlackBerry all the way, even with all your negativity BlackBerry is climbing.

You should all be badgering the companies that are giving away your personal information.

Grow up, see the light and most importantly... use the brains you were born with, not the stupid sheep brain that has grown in your heads!

BB10 is nothing like a palm pilot. Not even close. All you have to do is look up BB10 and you will find an award winning operating system that is nothing like BB7. It was actually created on a QNX platform and launched Feb 5, 2013.. There is good chance your car has QNX integrated within its systems by the way.

It's obvious I want BlackBerry to succeed. It's something I feel strongly about and don't think for a second that it won't happen. Just this morning I woke up to a few great headlines. 1. BlackBerry's BB10 voted Best operating by Didgit Magazine. 2. BES10 gets five star rating from SC magazine. 3. BlackBerry 's Secure Work Space for IOS and Android earns new Government Approval. The list go's on.

People have no memory of how a company can come back on a dime in the tech industry. All of BlackBerry's ducks are lining up now. If you can't see the writing on the wall, you're unfortunately blind. Like I said, BlackBerry will succeed, no doubt about it.

Afraid I'm with @Mel on this one, you have 456 reasons that add up to a hill of beans in the MASS market. Maybe their hardware will find a nitch somewhere but even that seems unlikely.

The scary part of what you said is the patents. Just what we need, another patent troll in world. Just finished a very contentious forum discussion on that in the "Microsoft vs Samsung" article InfoWeek had earlier this week.

If that stuff keeps up, they might as well combine all tech companies into one entity since everyone will get paid for any new tech product that ever gets released. But appears I'm one of the few who thinks it's ridiculous that Samsung pays Microsoft to use Android.

Maybe the NFL should pay MLB royalties for using the idea of selling tickets to watch a game played in a stadium. Oh right, they forgot to patent it first! I sure don't see difference. MS did not invent the operating system, just holds a patent on some obscure, internal feature needed in a o/s which has nothing to do with end use of product itself.

I was sitting next to someone the other day, and he was working away on his Blackberry -- and he APOLOGIZED to me for having a Blackberry! I was amused, working away on my Samsung 4. "Oh that's ok" I said "I'm still trying to get all my contacts off of my Palm Pilot!"

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